By Rich Best

Business owners are forced to contend with the many facets of growing and managing their business – product development, cash flow management, marketing and sales, and capital acquisition. This leaves little time to focus on their own financial management, much less to plan their financial future. In fact, most business owners see their business as their best investment and the true source of their financial security, so very few focus on creating assets outside of the business, which is a formula for financial disaster should the business fail to meet expectations.

Perhaps at no other time has it been as important for business owners to gain a complete perspective of both their business and personal financial objectives with special attention to optimizing the many components of each for the overall benefit of their financial future. This requires a long-term investment strategy with consideration for both the business as an investment and the accumulation of assets that can be converted to a lifetime stream of income. Following the most basic practices of investing, business owners have the opportunity to secure their family’s financial future regardless of how their business performs.

Three Key Investment Practices for Business Owners

Asset Allocation

Central to any investment strategy, regardless of your risk comfort level, is the long-term mix of your assets. Based primarily on the premise that not all assets move in concert, and some are more volatile than others, the purpose of asset allocation is to capture the benefits of diversification while investing in assets that have a low correlation to each other. The practice of asset allocation seeks to achieve the optimum mix of assets, including your business, that will generate returns linked directly to your long-term investment objectives. Because of the fundamental economic relationship between risk and return, to an overwhelming degree, your selection of asset mix has the primary impact on your long-term investment returns.

To achieve an optimal asset allocation, many business owners will gradually divest themselves of partial stakes in their business – through selling shares to an Employee Stock Option Plan, family members, or third-party investors – while maintaining a majority stake for control.


The second of the three key investment practices is diversification, which is the spreading of risk and reward within an asset class. In essence, diversification practices deliberate uncertainty, recognizing that it is virtually impossible to know which particular investment is likely to outperform another. Broad diversification seeks to capture the returns of different types of investments in all of the sectors over time, but with less volatility at any one time. If your business comprises the bulk of your assets, it’s difficult to achieve any level of diversification, which is why it is important to create assets outside of your business.


The third investment practice is rebalancing; that is, returning your portfolio to the target allocation at annual intervals. This is important for retaining the asset mix that best reflects your investment profile. Otherwise, the movements of the markets could expose your portfolio to greater risk or reduced return opportunities. For instance, a portfolio that starts out with a 70% equity and 30% fixed-income allocation could, through an extended market rally, shift to an 80/20 allocation.


Truth-be-told, investing “done right” is not that complicated – set goals, allocate, diversify and rebalance yearly. Then rinse and repeat. And, most importantly, don’t veer. It is so easy in fact, especially with the advent of online investment resources such as E*TRADE Financial®, that the notion of simply doing it yourself can be tempting. However, the stakes are so high that even the smallest mistake or temporary break from strategy can derail your financial future. The best investment advice for business owners is to work with an objective, independent financial advisor in developing and implementing a sound, long-term investment strategy.

Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites.

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank.

E*TRADE Financial is the registered trademark of E*TRADE Financial Corporation, and Nevada State Bank does not claim any ownership or exclusive right to the use of this trademark.